Across the world, attention is focused on the economic aftermath of the incidents of September 11. What gets missed or underplayed as a result is the state and direction of movement of individual economies prior to that date. In India's case, evidence on economic performance till July 2001, which has recently become available, points to a sharp deceleration in growth over the first four months (April-July) of this financial year, which was well before September.
 
According to the quick estimates of quarterly GDP growth released by the CSO, the Indian economy had settled at a 6.0 per cent growth rate during the four quarters beginning July-September 2000. However, over the subsequent two quarters, growth slipped to 5 and 3.8 per cent respectively, and stood at 4.4 per cent during the first quarter (April-June) of 2001-02. This shift to a lower growth rate of between 4 and 5 per cent over three quarters, is a clear sign of deceleration.
 
What is noteworthy is this slide in the pace of growth has essentially been the result of a deceleration in the growth of the commodity producing sectors: agriculture and manufacturing. Ever since the third quarter of 1999-2000 the agricultural sector appears to be performing extremely poorly, with growth rates of agricultural GDP being negative in three of the subsequent six quarters and less than one per cent in two.
 
In manufacturing on the other hand, starting from the 7 per cent plus level that GDP growth touched in the second half of 1999-2000, growth fell to six per cent during the second and third quarters of 2000-01 and then slumped to 3.5 and 2.3 per cent during the next two quarters. Going by the Index of Industrial Production, the slow down in manufacturing has been sharper, with the growth rate relative to the corresponding period of the previous year falling from 6.2 per cent during April-July 2000 to 2.6 per cent during April-July 2001.
 
What this suggests is that starved of adequate investments for more than a decade now, agricultural growth has reached saturation levels, despite signs of some diversification in terms of crops grown. Behind the investment slowdown is the stagnation and even decline in real public investment in the rural sector in general and agriculture in particular. Given the observed complementarity between public and private investment in agriculture, with the former known to drive the latter, the spur to private investment provided by high and rising support prices for a number of crops has been inadequate to neutralise the basic tendency towards sluggish capital formation. In the event, despite the fact that at a generalised, all-India level, monsoons have been normal or munificent in India for sometime now, agricultural growth has remained sluggish.
 
The story in the manufacturing sector is, however, substantially different. Manufacturing growth has declined largely because of sluggish demand conditions. There are two ways in which demand for domestically produced manufactured goods can falter. First, the overall growth in the domestic market could slow down, reducing the demand for manufactures. Second, the share of domestic producers in a market of a given size can decline, because of competition from international producers.
 
The first of these factors did play a role in braking industrial growth, once the post-liberalisation surge in demand for import-intensive manufactures had been satiated. Not only has the second half of the 1990s been characterised by some measure of success in the government's effort to reduce the fiscal deficit in the central budget, but this has occurred at a time when the tax-GDP ratio has fallen by close to 2 percentage points. The squeeze in expenditures this reflects would have substantially dampened the fiscal stimulus that was the prime driver of industrial demand and growth during the 1980s. With the effects of the sluggishness in the growth of agricultural incomes noted above adding to this, it is to be expected that the growth of the home market would have been constrained. That is, industrial growth is constrained from the demand side.